SoftBank's WeWork Investment Set At $5 Billion, But Will Avoid Debt And Liabilities

SoftBank Group wants to gain control of the co-working space company WeWork with a new round of funding. But it will not absorb its debt and lease obligations, per Reuters that quoted informed sources.

SoftBank may offer a $5 billion financing lifeline for the We Company, parent of WeWork. SoftBank already owns a third of WeWork thanks to the $10.6 billion investments it made earlier.

The latest offer by SoftBank also slashed We Work’s valuation to less than $10 billion, which is a fraction of the $47 billion it offered in January when the first round of funding started.

Packages from JP Morgan and SoftBank

Currently, WeWork, based in New York and a top player in the co-working office space market is battling a fund crunch. It may run out of cash by November if new financing does not materialize, per sources.

The We Company is now studying a debt relief package mooted by JPMorgan Chase involving a consortium of banks and institutional investors.

We Work had to shelve plans for an initial public offering (IPO) in September. Unlike Lyft IPO and other offers, investors questioned We Work's large losses, high valuation, the viability of the business model and management style of then CEO Adam Neumann, per stock market news.

The latest news said a special board committee of We Company is evaluating the proposals from JP Morgan Chase Bank and others. The negotiations might extend to next week as well.

Meanwhile, the report said the contingency funding plan mooted by JPMorgan may get more backing as it would allow the current management to operate.

It may help the company to move in the path of recovery by selling non-core assets and assert focus on the core business of office leasing business. Gradually, it hopes investor confidence can be won over and IPO can be launched so that investors can monetize holdings.

If the JPMorgan’s offer flounders, then WeWork’s options will be limited and it will have to accept the financing plan by SoftBank which will lead to a full takeover of the company.

Other options for WeWork will include selling off its core business of leasing space, which is sought by many investors.

“What signal does it give to the market if the largest investor won’t support it anymore?” asked Harvard Business School Senior Lecturer Nori Gerardo Lietz.

“That condition is precedent to anyone else writing an equity check,” Leitz noted.

According to reports, Softbank wants a long-term approach to rebuilding WeWork and wanted the IPO delayed for many years.

Despite reports of a billion-plus lifeline financing in the air, WeWork bonds are selling at low prices as investors seem to believe it is only a matter of time the company will be filing bankruptcy options and force restructuring.